"The Doctor's Office Is In - For a Steep Price",
The Real Deal - 02/03/2006
Author: Melissa Dehncke-McGill
Doctors enamored of ground-floor offices in residential buildings on the Upper East Side are paying a higher price than ever for proximity to New York's top-rated hospitals.
Brokers say the market for these spaces is among the hottest on record, thanks to tight inventory.
"I have been seeing record prices for this last year," said Paul Wexler of Corcoran Wexler Healthcare Properties, who has sold medical space for 20 years. "Doctors realize these are prime spaces in high demand and they're competing for limited space."
Historically, ground-floor office space sold for less than if that same space was used for residential, but that may be changing.
"I have seen the market shift so that you can get $800 to more than $1,000 a square foot on a medical unit," said Jovana Simic, executive director of health care real estate at Brown Harris Stevens.
In the Brown Harris' residential third quarter market report, a one-bedroom apartment averaged $879 a square foot throughout Manhattan, but an 1,100-square-foot one-bedroom that can be adapted for medical use after its interior walls are demolished can fetch $1,000 a square foot, Simic said.
Simic represents two owners of zoned medical space used as residential apartments, and says both are selling their spaces for medical offices. "The spaces are in Fifth Avenue and Park Avenue buildings," said Simic. "Both have a reasonable maintenance. The boards will approve the conversion to medical."
Doctors who are buying the spaces will have to create their own street entrances, Simic added.
Like residential, the value of medical office space has increased because inventory is scarce. Simic said little is available in the 2,000- to 4,000-square-foot range on the Upper East Side, so when space becomes available it goes at a premium. Simic said there are some doctors interested in getting 3,000- to 10,000-square-foot spaces, which are even harder to find.
Those that can't locate space to buy tend to go to a building where the ownership will permit medical use.
"I would assume that the majority of ground floor units on the Upper East Side are being used by doctors," said Simic. "On the side streets there are many doctors and a lot of [medical] signage. At a guess, I would say 80 percent."
If the market changes, owners are much safer with medical spaces than residential spaces, Wexler said.
"We have a space now at 40 West 13th Street in a commercial condominium," said Wexler. "There are interested parties for both medical and residential because of the high ceilings, windows on three sides, and quiet space. Physical characteristics have a lot to do with whether it will go residential or medical.
"When a building is designed, the ambiance of the lobby is the main focus and the space left over is an afterthought," Wexler added. "In the same building one side can have a lot of windows and the other side can be a dog of an apartment but be very desirable as a medical space."
Some ground floors always off-limits to doctors
Many of the best buildings in Manhattan have never allowed medical offices to occupy the ground floor, because they sell much better per square foot if they don't have patient traffic and deliveries.
"In the best buildings, often the apartment on the ground floor is either for servants or used as a guest apartment," said Bridget Restivo, a senior vice president at Alice F. Mason Ltd. "I also see people [who live in the building] buy apartments on the ground floor for office space because they don't want a mess in their apartments with their computers or office equipment."
Restivo cited buildings like 14 Sutton Place. "They have never had a doctor's office in their building."
Mika Sakamoto, a senior vice president at Sotheby's, pointed out that 15 Central Park West, a high-end development currently under construction and where a $45 million apartment sale recently broke the Manhattan sales record, has a lot of ground floor space that the developers want to sell as office space rather than use for retail. "They want people who own an apartment upstairs to buy that office space," she said.
In general, Sakamoto said that often co-op boards don't want a doctor there if it involves any kind of in-depth medical procedures.
"They would prefer that it be used as residential or a hedge fund office," she said. "There can be a doctor as long as it is a dry space, with no procedures at all."